Case Study:
Women on Wall Street: Fighting for Equality in a Male-Dominated Industry
Allison Schieffelin and Morgan Stanley On June 12, 2004, Morgan Stanley agreed to pay $54 million to settle dozens of claims from women who alleged that the securities firm denied them pay increases and promotions due to their gender. The case, filed by the Equal Employment Opportunity Commission (EEOC) on September 10, 2001, resulted from repeated complaints by Allison Schieffelin, a 43-year-old former convertible-bond sales clerk who worked in the firm’s institutional-stock division for 14 years. Schieffelin earned more than $1 million a year, making her one of the highest-paid and highestranking women on Wall Street to publicly challenge the industry’s pay and promotion practices. Schieffelin claims that she was trapped under a glass ceiling and continuously denied promotion to managing director despite being the top performer in her department. The EEOC claims that in addition to being repeatedly denied promotions and pay raises, women employees in Schieffelin’s division “endured coarse behavior and lewd comments from their male colleagues and supervisors.” Moreover, firm-organized sales outings with clients to golf resorts and strip clubs excluded women. Of the $54 million settlement, $12 million was paid directly to Schieffelin. About $40 million will be used to settle complaints from an estimated 100 current and former female employees of the institutional-stock division. The remaining $2 million was used to enhance anti-discrimination training at the firm. In addition to the monetary settlement, Morgan Stanley must also fund a program to have an appointed outsider monitor hiring, pay, and promotion practices for a three-year period. Although the settlement seems large, it is merely “pocket change” to a firm like Morgan Stanley; the $54 million represents approximately 2% of the $2.45 billion in profits the firm earned in the first half of fiscal 2004. Background on the Schieffelin et al. v. Morgan Stanley Case Allison Schieffelin first complained of Morgan Stanley’s working environment in a 1995 written review of her boss stating, “He makes the convertible department and the firm by extension an uncomfortable place for women.” During that same year, she also submitted an internal complaint about “unwelcome advances” from one of her male managing directors. At the time, she thought that management would be pleased with the tactful manner in which she handled the issues; however, today she feels management placed her on a “watch list” instead. In December 1998, after three years of withstanding the men’s locker-room type atmosphere in which the male employees openly “swapped off-color jokes and tales of sexual exploits and treated their female colleagues as inferior,” Schieffelin took her harassment and discrimination complaints beyond the firm’s executives to the EEOC. She hoped that the firm would see that she had been a dedicated employee throughout her entire career and that the issues with the firm’s pay and promotion practices needed to be amended. Instead, she claims the firm “embarked on a campaign to get me to quit.” She was fired in October 2001 for what the firm claims to be misconduct after a heated confrontation with her supervisor; however, both Schieffelin and the EEOC viewed her firing as illegal retaliation for her discrimination complaints. One year after Schieffelin complained, Morgan Stanley’s New York convertibles department, the department in which Schieffelin worked, promoted Gay Ebers-Franckowiak to managing director—the first female managing director in that department; many people believe that this was no coincidence. Morgan Stanley denied all discrimination charges and claimed that their female employees were and are treated equally. The EEOC planned to reveal evidence at the trial proving otherwise. The anticipated evidence indicated that some male employees of the firm ordered breast-shaped birthday cakes and hired strippers to entertain at office parties. The evidence supposedly provided statistics regarding the disparities between female and male promotion and pay within the firm. The trial was scheduled to begin July 12, 2004; however, a settlement was wrapped up mere minutes before opening arguments began. As part of the settlement, payroll statistics that showed whether or not there was a pattern of discrimination were sealed. An Isolated Occurrence or an Industry-Wide Problem? The allegations made against Morgan Stanley are not new to the securities industry. Several previous cases, in addition to statistics produced by the Securities Industry Association (SIA), indicate that sex discrimination is a persistent problem on Wall Street. In April 2004, Merrill Lynch agreed to pay $2.2 million to Hydie Sumner as part of a class-action lawsuit brought by more than 900 women claiming the financial giant had a long history of gender discrimination. Sumner wanted her old job back; she also said that she wanted to be a Merrill Lynch manager in order to make changes at the firm. “I thought, one day, I’ll be a manager and I’ll have a choice, and I won’t manage like him [Stephen McAnally, former manager of the Merrill Lynch San Antonio office],” said Sumner. As of early 2005, Merrill Lynch paid Sumner $1.9 million but was fighting the other $300,000, indicating that this payment would “not be considered until the issues relating to Ms. Sumner’s reinstatement at the firm are resolved.” In a more recent lawsuit, Stephanie Villalba, former head of Merrill Lynch’s private client business in Europe, sued for $13 million on gender bias charges. She claimed that her male boss had dif- ficulty accepting her in a senior position and as a result, she was “bullied, belittled, and undermined.” In early 2005, an employment tribunal in the United Kingdom ruled in favor of “Villella’s claim of victimization on certain issues, that included bullying e-mails in connection with a contract, but found no evidence of a ’laddish culture’ at the bank.” Villella intends to appeal the ruling. In February 2004, Susanne Pester- field, a former broker for Smith Barney, settled her case with the investment firm on the eve of an arbitration hearing. She alleged that during her seven years at the firm, she endured a “pattern of sexual harassment and a male dominated culture that included trips to strip clubs.” She described a working environment that was “hostile to women and in which women weren’t given the same opportunities to succeed as men were given.” She claimed that her male colleagues were better paid and received better leads for potential clients. Pester field’s accusations were not new to Smith Barney. A class-action lawsuit brought by female employees in 1996 led to a 1998 settlement in which the firm’s parent company, Citigroup Inc., paid out close to $100 million. The infamous case has been referred to as the “Boom-Boom Room” in reference to the basement “party room” in the Garden City branch of what was then Shearson Lehman Brothers, wherein discrimination and sexual harassment occurred. Among other things, the conversations that took place among the male employees went beyond their accomplishments on the trading floor to include their latest accomplishments in the bedroom. Shearson’s manager took a “boys will be boys” approach that encouraged obscene comments and lewd behavior. In her book, Tales from the Boom Boom Room, Susan Antilles provides a detailed account of the workplace culture at Shearson. According to Antilla, “it was a time when men in branch of- fices of brokerage firms were encountering significant numbers of female colleagues for the first time. For some of them, it was unsettling.” In the late 1990s, many well-educated women entered the financial services industry in hopes of finding great opportunities. Instead, they found an industry that continued to be dominated by white males and an environment that belittled and repressed women. The acts of alleged sex discrimination abound; nearly 3,000 women filed claims in 1996 and 1997 against Smith Barney and Merrill Lynch. Although most of the women settled, some did not, including Nancy Thomas, Sonia Ingram, Laura Zubulake, Deborah Paulhus, and Neill Sites. Perhaps most notable is the case of Nancy Thomas, a broker at Merrill Lynch for 18 years. Among the numerous allegations of sex discrimination made by Thomas, one is particularly salacious. Thomas alleges that in 1991 “someone left her a package in the mailroom with a dildo, lubricating cream, and an obscene poem.” An arbitration hearing was held in New York on September 13, 2004; arbitrators scheduled an additional 18 hearing sessions through July 2005. Merrill Lynch maintained that none of the testimony given as of late November 2004 “support[ed] even one of Thomas’s allegations.” Wall Street’s Glass Ceiling—The Numbers Tell the Story The 2003 Report on Diversity Strategy, Development & Demographics produced by the Securities Industry Association (SIA) presents data suggesting there has been little improvement in the advancement of women in the securities industry in recent years, and that biased pay and promotion practices are not just outdated. Even though Wall Street firms seem to be making attempts to improve the workplace environment for women, statistics prove that a strong glass ceiling still exists. There was a gradual decrease in the percentage of women in the industry between the years 1999 and 2003 (43% and 37%, respectively), and management positions in 2001 and 2003 continued to be dominated by white males. In 2003, white males held 85% of (branch) office manager positions, 76% of the managing director positions, and 79% of the executive management positions. This compares to 85%, 81%, and 75% for the three position categories in 2001. The same is true for line positions such as brokers (80% in 2001 versus 78% in 2003), investment bankers (77% versus 71%), and traders (71% versus 74%). On the other hand, “white women and men and women of color continue to comprise the majority (89%) of the staff and junior level positions.” These numbers become even more disturbing when one considers that women are not new to the profession. In 1974, women held 33.8% of all securities industry jobs with 6.5% being management positions. Muriel F. Siebert, chair of Muriel Siebert & Co. and the first woman with her own seat on the New York Stock Exchange, has worked on Wall Street since the 1950s. She claims that highly educated and successful women are consistently “dropping out” of the industry and changing careers because they feel they have no chance of reaching top management positions. Catalyst, a nonprofit research organization working to advance women in business, conducted a study of female professionals in the securities industry. Published in 2001 as Women in Financial Services: The Word on the Street, the results indicated the top three barriers to women’s advancement were lack of mentoring opportunities, commitment to personal and family responsibilities, and exclusion from informal networks of communication. The survey also highlighted the differences in the viewpoints of male and female professionals with respect to the advancement of women. While 65% of women believed they had to work harder than men to get the same rewards, only 13% of men believed this to be true; 51% of women felt they were paid less than men for doing the same work, while only 8% of men agreed with this statement. In addition, 50% of men believed that women’s opportunities to advance to senior leadership in their firms had increased greatly over the preceding five years, but only 18% of women agreed. Many of the women who file complaints, as well as their lawyers, maintain that the perceptual divide between genders is a serious issue. They argue that the men in charge at Wall Street firms do not recognize the existence of a problem, and therefore they fail to look at the statistics and to see the “big picture.” Mandatory Arbitration and Coercion Prevent Statistics from Appearing in Court In 1986, the Supreme Court ruled that sexual harassment is illegal under Title VII of the 1964 Civil Rights Act. However, recent statistics and settlements in gender discrimination suits suggest that the glass ceiling, at least within the securities and investment banking businesses, still exists. What makes Wall Street such a laggard when it comes to the treatment and advancement of women? One factor could be that before 1999 any employee of a Wall Street firm was required to resolve all disputes in a “closed-door negotiation process” rather than in a public hearing. As the rest of corporate America was hit with discrimination lawsuits in the 1980s and 1990s, the problems occurring on Wall Street remained, for the most part, behind closed doors. After the Boom-Boom Room case and the Merrill Lynch suit in the late 1990s, the Securities and Exchange Commission removed the mandatory arbitration requirement for Wall Street employees who had civil-rights claims. As a result, “the National Association of Securities Dealers and the New York Stock Exchange changed their arbitration rules in a way that permitted employees to sue under federal discrimination statutes in federal court.” Why Should the Securities Industry Make Changes? Sex discrimination lawsuits have been costly, in terms of money and negative publicity, for securities firms. Avoiding such costs in the future is a strong motivation for change, but not the only one. Another powerful reason is the increasingly in- fl uential role of women in business. In 1998, women owned close to 8 million U.S. businesses, which was one-third of the total, and “more than 40% of households with assets of $600,000 or more [were] headed by women.” In 2004, 10.6 million firms were at least 50% female-owned; 48% of all privately held firms were at least 50% female-owned. Moreover, as more working women approach retirement age and younger women rise in the ranks, securities firms desire to increase their female clientele. As a result, there is an increasing demand for female brokers to serve the needs of this “new” client base. Women investors tend to prefer doing business with a friendly, trustworthy advisor rather than just a person with financial expertise, and thus they aim to establish a personal relationship with their brokers/advisors. To serve an increasingly diverse client base, investment firms must recognize that they will need a diverse group of employees who recognize and react appropriately to the needs of their clients. Who Wins, Who Loses? Richard Berman, the judge in the recent Morgan Stanley case, described the $54 million settlement as a “watershed event in protecting the rights of women on Wall Street.” Many others, including Elizabeth Grossman, an EEOC lawyer on the case, hope that the settlement will act as a revelation for not only Morgan Stanley but other Wall Street firms as well. The settlement may cause other firms within the securities and investment banking industry to reevaluate their pay and promotion practices. Additional complaints may also surface because of the settlement. Although some people view the settlement in a positive light, others see a negative side. As part of the settlement, claimants agreed not to disclose any of the statistics and facts that would have been presented in the case. Although the women who will share the $54 million settlement scored a big win, some people believe that Morgan Stanley and other securities firms “scored an even bigger win” by preventing embarrassing statistics from being revealed in the courtroom and to the public. The securities and investment banking firms seem to have a “what the public doesn’t know, won’t hurt them” attitude. Unless the compensation and promotion statistics of those firms are exposed to the public, Wall Street businesses will continue operating within its current culture. In “Money Talks, Women Don’t,” an article about the Morgan Stanley settlement, Susan Antilla stated, “Ingrained cultural misconduct changes only when customers, colleagues, and the public get wind of the nasty facts and companies are embarrassed. Those who can afford to keep their problems quiet may never have to change.” Today on Wall Street Some aspects of work on Wall Street have improved for women, but changing the culture of an entire industry cannot happen overnight, especially if firms are reluctant to admit that a problem exists. Antilla suggests that there has been reluctance to address the discrimination and harassment issues even after they were revealed in the Boom-Boom Room and Merrill Lynch lawsuits of the late 1990s. Antilla says, “When it came to acknowledging that there was still a problem to work on—violators to stop and biases to correct—Wall Street had become a little like the dysfunctional family hiding the crazy uncle in the attic. Everyone knew sexual harassment was there and indeed had put much energy into urgently and quietly negotiating the crises that resulted from it. But hardly anyone spoke openly about the problem—called the doctor, if you will—and started the real work of making things better.” Today, firms are more likely to have diversity programs and sexual harassment training. Many companies have altered their recruiting processes and several have established partnerships with support organizations that promote equal opportunities in professions for women and minorities. Some companies are working at changing the “tone at the top” by promoting women to top positions and challenging old attitudes within the companies. For example, in late 2002 Smith Barney hired its first woman chief executive, Sallie Krawcheck. Since then, the company has fired some of its most successful brokers for mistreating female co-workers, thereby sending a message that such behavior will not be tolerated—even in the most valued employees. Despite these efforts, the industry statistics and continual lawsuits suggest that women in the financial services industry are not playing on a level playing field quite yet. Indeed, as one Wall Street observer, Dan Ackman, a columnist for Forbes magazine, noted, “beyond the numbers, nearly every woman on Wall Street will tell you there are, to this day, subtle and not-so-subtle double standards and a still pervasive atmosphere of harassment.” As the business writer John Churchill reports, “Many complainants claim the firms have just become subtler in their discrimination, rigging teams, for instance, so that when men retire or change firms, the most lucrative accounts they leave behind get assigned to other members of the old-boy network, not to the most senior broker in the office.” Consequently, the most important question with respect to sexual discrimination in the securities and investment banking industry may be, “What must happen in order for a true and pervasive cultural change to take place on Wall Street?”
Q1. Is business ethics relevant to the topic and examples in this case or is this just business as usual? Explain.
Q2. What are the ethical implications of the one-time arbitration requirement that prevented Wall Street employees from seeking redress through the court system?
Q3. Why is the securities and investment banking business maleoriented and dominated?
Q4. Why does sex discrimination seem to persist on Wall Street in spite of the negative publicity of lawsuits and monetary costs of settlement?
Q5. What can or should be done to transform the persistent culture of sex discrimination on Wall Street?
Q6. Would you like working on Wall Street as a woman? Explain.
Q7. As a man or woman, what lessons would you take from this case if you accepted a professional job in a Wall Street firm?
Your answer must be typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.